Too Big to Fail Banks
“If the big banks get large enough, we’ll become like Ireland today -- saving those institutions will ruin us fiscally, destroy the dollar as a haven currency, and end financial life as we know it.”
---Simon Johnson, Economist (Jan 2011)
We all know that the banks got bailed out in 2008. We were told that they were “too big to fail”. Most Americans were outraged when they heard this.
Over 90% of the phone calls to our U.S. Senators and Representatives in Washington DC gave a clear message, “Don’t you dare bail out the banks!” Most of our elected representatives didn’t listen to us.
Maybe they couldn’t listen to us. Some of them were terrified.
In Response to the Banker Bailout
“Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop two or three thousand points the first day, another couple of thousand the second day, and a few members were even told that there would be martial law in America if we voted no.”
-----U.S. Representative Brad Sherman testified in Congress (October 2008)
(Martial law is when the government invokes military forces to administer the law when the civilian law enforcement agencies are unable to maintain public order and safety.)
A: WHAT?! Martial law if the banks weren't bailed out?! Military forces controlling us?
B: Yes, that's what Martial law is.
How did the Big Banks grow to be “too big to fail”?
The reasons are simple. In 1999 and in 2004 the government and certain rating agencies changed some rules, and these changes helped a few banks grow to be so large.
Rules that changed the game for banks
1) Repeal of Glass Steagall (1999)
Glass Steagall was a law set up after the Great Depression in 1933 to protect consumers. In simple terms, it made it so banks which held public monies and customer deposits weren’t allowed to speculate with those monies. When Glass-Steagall was repealed in 1999, banks were able to speculate with customers’ deposits on Wall Street.
2) The Commodities Futures Modernization Act (1999)
The Commodities Future Modernization Act allowed the growth of the derivative market. Brooksley Born, the former head of the Commodity Futures Trading Commission [CFTC], warned the White House, the Treasury and the Federal Reserve that the derivative market would end up crashing our economy, and it did. Watch the movie “The Warning” here. It explains the story.
3) Change in Risk Limits (2004)
The SEC (Securities and Exchange Commission), an organization which regulates banks, allowed the banks to start setting their own risk limits. Some banks risked 40x their capital! Huge leveraging coupled with huge gambling in the derivatives market led to the banking collapse.
Wait a minute......
A: Didn't the Dodd-Frank Financial Reform Bill solve the problem?
B: No. Glass Steagall wasn’t reinstated. Most derivatives are still unregulated. Above all, powerful banking lobbyists are at work in Washington DC funding members of congress and pushing them to write legislation and to repeal legislation—all in their favor.
The dismantling of Glass Steagall, the deregulation of the derivative market (and the creation of new kinds of derivatives) and the laxing of lending requirements have enabled gigantic amounts of money to be transferred to big banks.
The money is in trillions. One trillion dollars is $1,000,000,000,000. A trillion dollars is a thousand billion, or a million million dollars. This particular balance sheet shows loans in excess of 8 trillion dollars. In fact, Bernie Sanders released a report where he found that in excess of $16 TRILLION has been loaned at zero or near zero interest to U.S. and foreign banks and corporations!
A: If the people didn’t want the big banks to be bailed out, and the government did it, who’s in charge?
B: The Federal Reserve has control of our money system. Ben Bernanke, the Chief of the Federal Reserve Bank, held the levers of the banker bailouts. We need a money system that works for the people, not just for the banks.
The Federal Reserve Bailed out the Banks
The Federal Reserve used the faith and credit of the U.S. tax-payer to bail out the banks to the tune of $12.3 trillion. Recall that big banks in the U.S. actually comprise the Federal Reserve.
The 50 states in 2011 had a collective debt of approximately $191 billion. The bank bailouts were 80 times greater than the total combined state deficits! The bailout money was enough to pay off everyone’s mortgage in the entire United States.
Deliberate Choices were Made
"We have no expectation or intention to get involved in state and local finance," Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later, "should not expect loans from the Fed." --- Wall Street Journal (January 8, 2011)
Money for the Banks, not for the States
Notice how the amount of money given as stimulus to help the people compares to the amount of money used to bail out the banks.
Did the bank bailouts work?
Watch the bears explain the bailouts
Public Banking and Too Big to Fail
A: Could a Public Bank become "too big to fail"?
B: No. For one, it wouldn't risk its assets in risky speculation. It would have to follow strict lending standards, and public banks don't leverage their money to such high extremes. People who manage a public bank have only the public's well-being in mind, not mega-profits for bank owners and shareholders.
People Speak Out.
The Federal Reserve bailed out the multinational private banks, and this money has not trickled down to us. Some people are coming up with a powerful solution to our economic problems. Return the power to issue credit back to the states.
“It is time to declare economic sovereignty from the multinational banks that are responsible for much of our current economic crisis. Every year we ship over a billion dollars in Oregon taxpayer dollars to out-of-state and multinational banks in the form of deposits, only to see that money invested elsewhere. It’s time to put our money to work for Oregonians.”
Bill Bradbury, former Oregon Senate President and Secretary of State, quoted in The Nation.
1) Jospeph Stiglitz---Economist
t has now been almost five years since the bursting of the housing bubble, and four years since the onset of the recession. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 23 million Americans who would like to work full-time cannot get a job. Almost half of those who are unemployed have been unemployed long-term. Wages are falling—the real income of a typical American household is now below the level it was in 1997.
2) Dennis Kucinich---National Leader of the Peace Movement, Critic of the Federal Reserve, Creator of the NEED Act (H.R. 2990)
Would Public Banking Help Us Too?
Yes, it would! One of the Fed's mandates "..maximum employment, stable prices, and moderate long-term interest rates." does not really seem to be working out too well.
The way to help people is for Washington State and the other states to each have their own public bank. State Public banks perfectly align with the Need Act and get money moving among the people, like Jospeph Stiglitz talks about. With a public bank there is no profit motive for bankers and shareholders. The profit motive has made people do very reckless things and is what is making our country becoming more like a banana Republic and less like a land of opportunity.
Many people in 17 states across the U.S. are pushing for public banks. Join the push.